Overview on Key Statutory Laws for NGOs (Income Tax, FCRA, CSR)

Types of entities that can register as charitable institutions in India

For charitable activity, the following entities can be constituted:

Society
Trust
Not for profit Company

While above entities have separate incorporation laws, the various laws apply uniformly for all above type of entities

Definition of Charitable purpose in Income Tax

Section 2(15) "charitable purpose" includes

Relief of the poor,
Education,
Yoga,
Medical relief,
Preservation of environment (including watersheds, forests and wildlife) and
Preservation of monuments or places or objects of artistic or historic interest, and
The advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves carrying on trade, commerce, business, service for a cess, fee or any other consideration unless—
- such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
- the aggregate receipts from such activities during the previous year do not exceed
  twenty per cent of the total receipts.

Types of registration/approval of charitable institutions under IT Act

1.10(23C) approval category merged with 12A0
12A, 12AB (earlier 12AA now deleted)
10(46)-a body notified by Central/State Govt and S 35-approved institutions for scientific research etc
80G Approval for tax deductions to donors for Donations

New regime of income tax registration for charitable organisations wef 1.4.2021

Re-registration/approval of existing charitable entities u/s 10(23C), 12A,35 and 80G approval for a period of 5 years, thereafter renewal once every 5/10 years. Perpetual registration abolished.

Department wants to have database and better control/monitoring on charitable institutions which has been fragmented and decentralised until now

Types of Approvals:

Re-registration/Revalidation of existing registered entities-5 years
Registration for Unregistered entities
Provisional registration for new entitites-3 years
Provisional to Normal registration for new entities- Total period 5 years
Modification of objects clause for 12A entities(within 30 days)
If registered/approved both under 10(23C) and 12A, then retain one, the other becomes inoperative
Renewal of registration after 5 years

Renewal of 12AB registration and 80G approval of existing registered entities

Renewal (Form 10AB) 6 months before expiry of 5 years and after due inquiry process

Most 12AB and 80G registration have been issued upto AY 26-27. Som renewal application in 10AB have to be filed by 30th Sep 2025 separately for 12AB and 80G.

Renewal will be in Form 10AD for both 12AB and 80G.

In Finance Act 2025, Small NGOs i.e. where income is less than Rs. 5 cr in previous 2 years preceding the year in which renewal application is made will get 12AB registration for 10 years instead of 5 years. Not applicable for 80G approval and for provisional registration, registration by unregistered institutions which remains as 5 years. Applicable from 1.4.2025

Department’s power to cancel registration

Power to cancel registration for Specified Violations i.e.

spent income for other than object
business income not incidental and no separate books
private religious purpose, particular religious community/caste
violation of other laws which affect achievement of objectives
benefits u/s 13 (not reasonable)
section 11(5) non compliance
conditions not complied specified in registration certificate (Form 10AC).

Reference by AO to CIT/PCIT who shall pass order within 6 months from quarter in which notice was issued.

Accreted Income or Exit Tax-Section 115TD of IT Act (1.6.2016)

Accreted income is excess of fair market value of assets over total liabilities of Trust. Accreted income is taxed at MMR
Conditions when 115TD triggered:
- 12AB registration cancelled
- Modification of objects not applied for regn/not in line with condition of registration and application rejected
- Merged into an entity not with similar objects and not registered under 12AB
- failure to transfer assets upon dissolution to another 12AB/10(23C) entity within 12 months
- Newly added: non registration, non renewal, non conversion of provisional to regular registration wef 1.10.24

Merger of charities with same/similar objects-new section 12AC specifying situations of merger when accreted tax will not be applicable effective 1.4.2025.

Anonymous donation-Section 115BBC of IT Act

For charitable trust, if name and address of donor is not known, it is anonymous donation.
Not applicable to Religious Truss or charitable cum religious trust except where the donation is for an educational or medical institution
Tax payable 30%. Threshold: Rs.1 lakhs or 5% of total donation received whichever is higher.

Statement of Section 80G donation

80G provisions: Cash donation upto Rs.2k permitted, not in kind and only through banking channels. No anonymous donation permitted u/s 80G.
80G deduction-100%/50% with or without qualifying limit i.e. subject to 10% of adjusted Gross Taxable income. Donation to charitable institutions falls under 50% with qualifying limit.
80GGA deduction-100% for donation for scientific research and rural development projects
Form 10BD-Statement of Donation provided approved under 80G
- Donation type: a. Corpus b. Specific c. Others
- UIN of donor-PAN, Aadhar. If PAN / Aadhaar is not available then either the passport No. /Election photo identity / Driving License/ Ration Card/ Tax Payer identification Number where the person resides outside India.
- Mode of receipt-cash, kind, electronic and cheque, others
- File by 31st May for each FY. Fee and Penalty for delayed filing
- Revision can be made

Section 80G approval can be applied even if charitable status benefit taken which was not allowed earlier- effective 1.10.2024

Section 80G-Receipt/certificate of donation

Form 10BE Submission Guidelines

Due by 31st May for the preceding financial year
Associated with the donor's UIN
Penalties apply for late submission
Generate and download receipt for donations from web portal after filing Form 10BD Provide the donor with system-generated Form 10BE for 80G benefit claim

Code of Taxation for Charitable Institutions

Chapter III-Incomes which do not form part of total income:

Section 11: Income from property held under trust for charitable or religious purposes.
Section 12: Income of trusts or institutions from voluntary contributions for charitable and religious purpose.
- Section 12A – Conditions for applicability of sections 11 and 12
- Section 12AA – Procedure for Registration-repealed
- Section 12AB – Procedure for Registration under new regime
Section 13: Section 11 not to apply in certain cases.

Section 11: Income from property held for charitable or religiouspurposes.

Section 11(1): the following income shall not be included in the total income of the previous year of the person in receipt of the income—

Income derived from property held under trust wholly for charitable or religious purposes, to the extent such income is applied to such purposes in India; and to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution and provided it is deployed in Section 11(5) modes of investment.

Deemed Application-1 year

As per clause (2) of Explanation to section 11(1):

If, in the previous year, the income applied to charitable or religious purposes in India falls short of 85% of the income from property held under trust by any amount—
- for the reason that the whole or any part of the income has not been received during that year, or
- for any other reason,
Then at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under section 139 (1) for furnishing the return of income) in form -9A be deemed to be income applied to such purposes during the previous year in which the income was derived.
Inter charity donation permitted

Note: If DA amount is not utilized in the next year then the amount will be taxable income.

Accumulation-5 years

As per section 11(2):
If, in the previous year, the income applied to charitable or religious purposes in India falls short of 85% of the income derived during that year from property held under trust, but is accumulated or set apart for application to such purposes in India, such income shall not be included in the total income of the previous year provided the following conditions are complied with, namely:—

such person furnishes a statement in the prescribed form (Form 10) and in the prescribed manner (Online) to the Assessing Officer, stating the purpose and period for which the income is being accumulated or set apart which shall in no case exceed five years (not applied amount taxable in 5th year alone);
the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) and utilised for the purpose for which accumulated
Not transferred to an entity covered under Section 12A of the Act
Form 10 is furnished on or before the due date specified under section 139 (1) for furnishing the return of income for the previous year.
Repurposing of accumulation can be permitted by the Department.

Disallowance of Cash/bearer Payments

Section 40(A)(3) provides that “Where the assessee incurs any expenditure in respect of which a payment or aggregate of
payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds Ten Thousand Rupees, no deduction shall be allowed in respect of such expenditure”.

Note:

The expenditure as disallowed above, will be taxed @ 30%
The cash payments made by staffs and reimbursed by organisation shall also be treated as cash payment
Disclose non-compliances in ITR, if same noticed by Assessing Office during Income Tax Assessment, additional penalty and interest may also be levied.
Exceptions in Rule 60D

Disallowance for Non Deduction of Tax at Source

Section 40(a)(ia) provides that 'Where the assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B then the amount equal to 30% of expenditure shall not be allowed at the time of computation of
Income’

Note:

The expenditure as disallowed above, will be taxed @ 30%
Disclose non-compliances in ITR, if same noticed by Assessing Office during Income Tax Assessment, additional penalty and interest may also be levied.

Section 12A

Conditions for Applicability of Section 11 & 12

The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless organization is registered under section 12AB

Books of accounts of the organization have been maintained and audited by the Chartered Accountant

Organization has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.

Section 13 of Income Tax

Section 13(1): Section 11 not to apply when

Trust for private religious purposes which does not ensure for the benefit of the public.
Trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste.
If any part of income of trust ensures directly or indirectly for the benefit of any person referred to in sub-section (3).
If any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3).
Non compliance of Section 11(5)-permitted modes of investment

Section 13(6): The exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in sub section 3.

S. 115BBC-Tax @30% on denied income for 13(1)© and 13(1(d) violations. 2. Penalty for providing unreasonable benefits to specified persons- s 271AAE penalty equal to amount of benefit in first year and twice for subsequent year

Section 13(3): List of persons

a. the author of the trust or the founder of the institution.

b. any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; increased to Rs.1 lakhs in that PY and aggregate Rs.10 lakhs during lifetime of institution by Finance Act 2025

c. where such author, founder or person is a Hindu undivided family, a member of the family;

cc. any trustee of the trust or manager (by whatever name called) of the institution;

d. any relative of any such author, founder, person, member, trustee or manager as aforesaid;

e. any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. "relative", in relation to an individual, means—

a. spouse of the individual;
b. brother or sister of the individual;
c. brother or sister of the spouse of the individual;
d.any lineal ascendant or descendant of the individual;
e. any lineal ascendant or descendant of the spouse of the individual;
f. spouse of a person referred to in sub-clause (b), sub-clause (c), sub-clause (d) or sub-clause(e) g. any lineal descendant of a brother or sister of either the individual or of the spouse of the individual

Section 13(2): The income or the property of a trust deemed to have been used or applied for the benefit of a person referred to in 13(3)

If any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both.
if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation;
if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;
if the services of the trust or institution are made available to any person referred to in sub-section
(3) during the previous year without adequate remuneration or other compensation;
if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate;
if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate
if any income or property of the trust or institution is diverted during the previous year in favor of any person referred to in sub-section (3)

Objective of TDS

Regular Inflow of Revenue for Government
Checking of Tax Evasion
Widening of Tax Base